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Evolve says first-half profit dropped as expected

Evolve Education said first-half profit more than halved as occupancy rates dropped and it took a $3 million GST impairment. The early childhood education centre operator maintained its forecasts for the full year.

Consistent with previous guidance, net profit fell to $4 million in the six months to Sept. 30, including the impairment which related to historic GST treatment of payments to home-based workers. Excluding that, profit was $7 million, compared to $8.8 million in the previous first half. Revenue rose 7 percent to $81.3 million.

When Evolve warned of the expected fall in August, chair Alistair Ryan said it was disappointing and the company had been slow to react but was confident it could turn it around in the second half. Chief executive Alan Wham resigned shortly afterwards, to be replaced by Mark Finlay, a former director and founder and managing director of the Lollipops Educare Group.

Finlay said today that the company is still targeting net profit before non-recurring items between $14 million and $15 million in the current financial year, and that will depend on strong enrolment levels in calendar 2018 and "further cost reduction initiatives".

Home-based services revenues have "continued to deteriorate", dropping to $10.9 million in the first half from $12.7 million a year earlier, which the company said had been impacted by the costs and distraction of compliance activities. A comprehensive business review is being undertaken, it said.

Centre occupancy fell 2 percentage points to 81 percent on a same-centre basis in the first half, but there were early signs of recovery in the second quarter, it said. Occupancy of its 15 centres bought in the 2017 financial year rose 2 percentage points to 70 percent.

In the first half, Evolve bought seven existing centres for a total of $9.9 million and opened two new centres, meaning it now has 126 in total. The company will open a third new centre in West Auckland this month, and plans to open a further four in the next year, all in the North Island. Finlay said the company is "taking a cautious approach to acquiring existing centres given the high price expectations of owners and a general lack of quality centres coming to the market."

"This quieter period for centre acquisition is enabling us to focus on improving operational effectiveness and efficiencies across our existing portfolio of early learning centres, and pursuing growth through the development of new centres," he said. "Our approach will continue to be to actively manage the portfolio, particularly those centres that do not meet our financial or operating targets."

Evolve declared a 2.5 cent per share interim dividend, unchanged from the previous year, and payable on Dec. 20.

The shares last traded at 78 cents, and have fallen 22 percent this year.